2022 (6) TMI 553 - HC - GST

Revenue authorities must refund compensation cess after favorable appellate order, withholding deemed arbitrary and unjustified

HC upheld appellate authority's order directing refund of compensation cess to assessee. Revenue authorities had withheld refund despite appellate order ... Refund of unutilized input tax credit of compensation cess - adjusted total turnover under Rule 89(4) of the CGST Rules - exempt supply as defined in Section 2(47) of the CGST Act - mutatis mutandis application of CGST provisions to the Compensation Cess Act - writ jurisdiction under Article 226 - limited scope and not to act as an appellate authorityAdjusted total turnover under Rule 89(4) of the CGST Rules - exempt supply as defined in Section 2(47) of the CGST Act - mutatis mutandis application of CGST provisions to the Compensation Cess Act - Domestic supplies of finished goods attracting nil rate of compensation cess are to be treated as exempt supplies and excluded from adjusted total turnover for computing refund of unutilized ITC of compensation cess under the Rule 89(4) formula as applied to the Cess Act. - HELD THAT: - The Compensation Cess regime incorporates the provisions of the CGST and IGST Acts mutatis mutandis for levy, collection and refund. Rule 89(4) prescribes the formula for refund of ITC in zero-rated supplies and expressly excludes the value of exempt supplies (other than zero-rated supplies) while calculating adjusted total turnover. Section 2(47) of the CGST Act defines 'exempt supply' to include supplies attracting nil rate of tax and non taxable supplies. Goods subject to nil rate of compensation cess therefore fall within that definition and must be treated as exempt supplies for the purpose of the refund computation under the Cess Act, and accordingly excluded from adjusted total turnover when applying Rule 89(4). The appellate authority applied this legal position and the court found no error in that conclusion.Nil rated domestic supplies are exempt supplies for refund computation and must be excluded from adjusted total turnover under Rule 89(4) as applied to the Cess Act.Refund of unutilized input tax credit of compensation cess - writ jurisdiction under Article 226 - limited scope and not to act as an appellate authority - The High Court will not interfere with the Appellate Authority's order allowing the refund where no jurisdictional error or procedural irregularity is shown, and the CGST authority's withholding of the refund contrary to that order was arbitrary and must be remedied by directing payment with interest. - HELD THAT: - Having examined the impugned appellate order, the court concluded that the appellate authority gave cogent, speaking reasons, did not commit jurisdictional error or breach principles of natural justice, and correctly applied the relevant legal provisions. In exercise of Article 226 jurisdiction the High Court will not substitute its view for that of the appellate body on findings of fact and proper application of law. Simultaneously, the court found the respondent CGST authority's action in withholding payment despite the appellate order to be arbitrary and unjustified; accordingly the authority was directed to refund the amount as per the appellate order along with applicable interest within the time stipulated.Writ petition challenging the appellate order dismissed; writ petition seeking enforcement of the appellate order allowed and respondent directed to pay the refund with interest within eight weeks.Final Conclusion: The Appellate Authority correctly held that domestic supplies of finished goods attracting nil rate of compensation cess are to be treated as exempt supplies and excluded from adjusted total turnover for refund computation; the High Court declined to disturb that order and directed the CGST authorities to refund the amount as ordered by the Appellate Authority, with interest, within eight weeks. Issues Involved:1. Refund of ITC of Cess in cases of zero-rated supply of goods.2. Inclusion of domestic supply in adjusted total turnover for refund calculation.3. Jurisdictional and procedural validity of the Appellate authority's order.Issue-wise Detailed Analysis:1. Refund of ITC of Cess in Cases of Zero-Rated Supply of Goods:The main issue in the writ petitions is whether for computing the refund of credit of compensation cess under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules, the domestic turnover of final products not taxable under the Cess Act should be excluded to arrive at the adjusted total turnover. The formula under Rule 89(4) categorically excludes the value of exempt supplies other than zero-rated supplies. The definition of 'exempt supply' under Section 2(47) of the CGST Act applies mutatis mutandis to the Cess Act for computing the refund of ITC of Cess.2. Inclusion of Domestic Supply in Adjusted Total Turnover for Refund Calculation:The CGST authorities included the supply of finished goods not subject to Cess in the adjusted total turnover, which was contested by the assessee company. The assessee argued that this inclusion contradicts the formula prescribed in Rule 89(4) of the CGST Rules, which excludes the value of exempt supplies. The Appellate authority had allowed the refund claim by excluding such supplies from the adjusted total turnover, which was upheld by the court.3. Jurisdictional and Procedural Validity of the Appellate Authority's Order:The assessee company contended that the writ court should not interfere with the Appellate authority's order as there was no jurisdictional error or procedural irregularity. The court agreed, stating that the Appellate authority's order was based on cogent reasons and did not violate principles of natural justice. The court emphasized that it would not act as an appellate authority to substitute the findings of the Appellate authority.Summary:The court dismissed the writ petition filed by the CGST authorities, challenging the Appellate authority's order dated 5th February 2021, which allowed the refund claim of the assessee company. The court directed the CGST authorities to refund the amount as per the Appellate authority's order along with applicable interest within eight weeks. The court found no procedural irregularity, jurisdictional error, or violation of natural justice in the Appellate authority's order and upheld its findings, emphasizing that the domestic supply of goods not subject to Cess should be treated as exempt supplies for the purpose of refund calculation under Rule 89(4) of the CGST Rules.